Iwas hoping to bank a 50% profit just before the share price slipped back. Now it seems I'm in for the longer term:-
LONDON (AFX) - Shares in easyJet PLC were lower in midday deals as valuation
concerns, yield worries and fuel price caution led house broker UBS Warburg to
downgrade its stance in the wake of the group's surprise trading statement,
dealers said.
The budget airline said this morning that it is likely to report a pretax
profit contrary to expectations of a loss in its upcoming first-half results
which are due May 8.
The company also said substantially higher insurance premiums have been more
than offset by favourable fuel prices, while better weather has resulted in
lower disruption costs and control over costs have been strong.
This followed easyJet's release of March traffic data yesterday, which
indicated a first-half passenger volume growth to 34.3 pct with the seat load
factor improving 3.6 pct to 84.2 pct, with a dilution in yield.
UBS Warburg moved its stance to 'buy' from 'strong buy' in reaction, leaving
its price target unchanged at 570 pence.
UBS said the airline remains its favourite long-term play in the sector. But
the Swiss broker now reckons that the stock "deserves a short term breather" in
the face of increase fuel price risk.
Following today's guidance, UBS upgraded first-half forecasts to
pre-exceptional net profit of 8 mln stg, but built in a higher fuel cost and
lower yield expectations for the second half, leaving full-year forecasts
unchanged.
However, it expected some potential upside, as new routes in the second half
from Paris and Gatwick have the potential to create significant extra value
long-term.
The broker calculated that easyJet is now trading on an enterprise value of
300 pct of its fleet value, compared to rival Ryanair's 445 pct and the
traditional airlines' 86 pct.
Merrill Lynch was more upbeat on easyJet, repeating 'buy' advice.
Its current full-year pretax estimate is 59.5 mln stg based on the
assumption of a 35 pct increase in passenger volumes and a 3.5 pct decline in
average yield. The data today would suggest its pretax estimate has the
potential to be increased by up to 10 pct, the broker advised clients.
On valuation, Merrill reckons the stock is at a 33.8 pct and a 28.3 pct
discount to Ryanair against earnings for this year and next.
The broker reckons this discount can narrow to 20 pct, leading it to
recommend a price objective of 560 pence -- although it noted that potential
revenue driven upgrades may be offset by a rising fuel price.
Dresdner Kleinwort Wasserstein also kept a 'buy' stance and target of 718
pence on easyJet after the update. But the broker was leaving forecasts
unchanged ahead of the results in expectation that yield forecasts may need
tapering.
Credit Suisse First Boston was another to recommend 'buy', targeting 550
pence for the stock.
At 12.10 pm, shares in easyJet were down 11 pence to 500.
bge/ob
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